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3 Soft Drinks Stocks With Potential to Beat Earnings in Q4

Zacks Equity Research

The fourth-quarter 2018 earnings season is in full swing as results of a large chunk of companies are already out there. Overall, the reporting cycle has so far been soft with sluggish earnings and sales of companies apart from a handful of positive surprises.

On the earnings front, we would focus on the Zacks Beverages – Soft Drinks industry, which supplies non-alcoholic beverages like sparkling soft drinks, juices, enhanced water, sports and energy drinks besides dairy and plant-based beverages to the market.

Industry Trends to Govern Q4 Results

A key concern for players in the soft drinks industry has been the growing consumer preference for health drinks and the consequent boycott of carbonated drinks. This has entailed grave consequences for makers of carbonated drinks, who are witnessing a sharp decline in revenues and profits. Many players have reinvented their portfolios to include more health drinks and other variations for overcoming this descent. However, we still believe that the revenue streams of companies in this space will persistently be affected by the soft carbonated drinks category during the fourth quarter.

Further, these companies will continue to struggle with escalated raw material and transportation costs, much like others in the broader Consumer Staples sector. These cost elevations along with the impacts of trade-war tensions between the United States and China as well as stiff competition are likely to weigh on the top lines and margins of soft drinks makers in the fourth quarter.

These trends have spelt doom for stocks in the soft drinks industry. Consequently, the stocks have collectively dropped 15.9% in the past year, significantly wider than the S&P 500 index’s decrease of 5.5%. However, the industry has fared better than the broader sector’s fall of 19.4%. Further, the industry is placed among the bottom 22% of the 256 Zacks industries.

Industry Vs. S&P 500 & Sector


Nonetheless, we expect these companies to capitalize on synergies drawn from the ongoing efforts to boost productivity, product launches and an accelerated focus on the sparkling soft drinks category alongside investments and innovation. These endeavors should go a long way in helping these companies regain the lost market share and also drive volumes, which should cushion the revenue base in the upcoming quarterly results. Further, the industry participants are likely to gain traction from a strong footing outside the United States, particularly the developing and the emerging markets. Additionally, cost-containment measures and the discontinuation of troubled brands are expected to aid margins and provide sufficient support to the companies’ bottom lines.

Q4 Expectations

The soft drinks industry, which is part of the Zacks Consumer Staples sector, might bear the brunt of the aforementioned headwinds. However, we are hopeful that the players’ initiatives will somewhat offset these shortcomings. Per the latest Earnings Preview, the Consumer Staples sector’s aggregate fourth-quarter EPS is projected to increase 4.9% with revenues anticipated to witness 1.8% growth.

Despite the odds, it is not wise to fully shy away from investing in the industry. There are a few positive trends in the industry that promise strong earnings growth in the quarters ahead.

Our Picks

To that end, we bring you three stocks from the Zacks Beverages – Soft Drinks industry, which may show potential based on a favorable Zacks Rank and a positive Earnings ESP. Our research suggests that stocks with the ideal combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP have as high as 70% chance of delivering an earnings surprise. It makes sense to add these prospective winners to your portfolio, ahead of the respective releases. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Monster Beverage Corporation MNST, a marketer and distributor of energy drinks and alternative beverages, is a solid bet. The company delivered average positive earnings surprise of 1.4% in the trailing four quarters. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 40 cents, reflecting year-over-year growth of 14.3%. The company has an Earnings ESP of +0.31% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Monster Beverage Corporation Price and EPS Surprise

Monster Beverage Corporation Price and EPS Surprise | Monster Beverage Corporation Quote

Coca-Cola European Partners PLC CCEP is a producer, distributor and marketer of a range of nonalcoholic ready-to-drink beverages including water, juice, isotonic, sparkling flavor and energy drink, and other products. It currently has a Zacks Rank of 2 and an Earnings ESP of +2.34%. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 64 cents, representing a year-over-year rise of 10.3%. The company pulled off average positive earnings surprise of 3.3% in the last four quarters. This United Kingdom-based company is slated to report earnings on Feb 14.

Coca-Cola European Partners PLC Price and EPS Surprise

Coca-Cola European Partners PLC Price and EPS Surprise | Coca-Cola European Partners PLC Quote

PepsiCo Inc. PEP is one of the leading global food and beverages companies worldwide. Its leading brands include Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. Currently, the company has an Earnings ESP of +0.03% and a Zacks Rank #3. The Zacks Consensus Estimate for the fourth quarter stands at $1.49, which remained unchanged in the last 30 days. This New York-based company delivered average positive surprise of 3.4% in the preceding four quarters. It is scheduled to release results on Feb 15.

Pepsico, Inc. Price and EPS Surprise

Pepsico, Inc. Price and EPS Surprise | Pepsico, Inc. Quote


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